The Effect of Lease Financing on the Performance of Business in Development Bank of Ethiopia (DBE)

Abstract

The main aim of this Study was to investigate the effect of lease financing on the Performance of Business Enterprise by focusing on Supply DBE and demand (SMEs) side factors that constrain small and medium size business from lease financing practice. The Study used quantitative methods of data approach. In identifying the respondents from the study population, random sampling method of both probability and non-probability techniques was adopted. Based on this, 294 sample SMEs were drawn from the total population of 306 SMEs in the study areas. DBE loaning units of Districts and branches were used to take sample respondents. The collected data were analyzed through descriptive statistics which was include the mean, median, standard deviation analysis, and Heckman two stages procedure model. The study used Heckman first stage procedure in lease financing practices whereas Heckman second stage was used to evaluate the Performance of the business. The study found-out that profitability of the business, productivity of firm and capital of the firms were significantly and positively affected lease financing practices whereas amount of lease financing (fund mount) had negatively affected Lease financing practice and performance of the business in the DBEs decision. The estimates of Heckman second stage showed profitability of respondents was robust and the result of the study showed that capital of the firm was significantly increased DBE’s profitability and SME’s income from lease financing project. The conclusion and recommendation are given based on the questionnaire and predeveloped document results and as the study concludes that leasing is the best opportunity to get finance without collateral and credit history. And the study recommends that lease financing practices should be encouraged highly by capital of the firms, profitability of the business and productivity of firm in developmental strategy.